Education is very important and is considered as a gateway to a good career. Hence, Indians strive to get a good education from the best colleges- in the country or abroad. But the cost of higher education has gone up and can cost a couple of lakhs easily.
So education loans are being allowed by banks and other NBFCs to help students and their guardians in making payments towards the cost of education and living expenses while pursuing higher education.
Important Features of Education Loans
Available with/without Collateral
Education loans can go up to Rs 1 crore based on the needs of the student. While public sector banks lend collateral-free education loans for up to Rs 7.5 lakhs, many other private sector banks and education loan lenders give collateral-free loans up to Rs 40 lakhs.
Lower Interest Rates
Interest rates on education loans are lesser as lending for education is categorized under Priority Sector. The interest rate can range from 9 -15% depending on the details of the applicant and lender credit policies.
Does not Need Credit Score for the Primary Applicant
The student who is proceeding for higher education is the primary applicant. As he/she might not have exposure to credit earlier, there is no credit score requirement. However, a co-applicant is mandatory for an education loan. It could be the parents, siblings, spouse, etc.
Allows Income Tax Benefits
The interest payment on an education loan is allowed Income Tax benefits under Section 80E of the Income Tax Act. This can come across as a huge benefit for working professionals who are looking to save some tax.
Longer Repayment Periods
The actual tenure of the loan starts after the completion of the course / getting a job. It can extend up to 5-7 years after that.
Moratorium Allowed for Initial Periods
There is no EMI repayment required during the initial periods of the loan. An education loan comes with a moratorium on payment of EMI till 1 year after the course completion or 6 months after getting a job whichever is earlier.
Who Can Avail An Education Loan?
Anyone who is looking to pursue higher education can apply for an education loan. It may be applied when you are right out of your school/college or after working for some time. A co-applicant is generally required. It could be your parents, siblings, spouse, etc.
Courses are Allowed Under Education Loan
Full Time or part-time courses can be chosen to avail an education loan. Vocational courses are also allowed. These courses could be done in India or any other country. Courses in the area of management, engineering, medicine, architecture, hospitality, fashion designing, etc can be taken up for the level of graduation or post-graduation.
Expenses are Covered Under An Education Loan
An education loan covers all expenses in relation to the course of study. It covers the course fee, cost of books, accommodation and boarding expenses, lab fees, library expenses, exam fee and also cost of airfare to the country of study and back
What are the Minimum and the Maximum Amount of Loan that can Be Avail?
There is no minimum and the maximum amount set for education loans. These amounts are decided based on the course of study opted by the student. The lender takes a call on the amount, the margin and the collateral, (if required) based on the course opted,the prospects of employment after finishing the course and current academic performance of the student.
Interest Rate and other Charges on an Education Loan
The interest rate charged on an Education Loan can depend on many factors like the credit score of the co-applicant, collateral arranged, employment prospects of the course, existing relation of the borrower with the lender, etc
Generally, the interest rate on education loans is in the range of 9-15%. Loans from public sector banks tend to be cheaper while the private lenders are costlier. But the banks tend to be rigid on maximum amounts and other conditions for a loan and the private lenders are more flexible in this regard.
Check out some of the top education providers and the details of their loans click here.
Documents Required for Applying to An Education Loan
The documents required for applying to an education loan are
KYC documents - Proof of Identity and address
Income statements - Bank statement, salary slip, Income Tax returns for the co-applica Academic records - Latest qualification mark sheet, basic qualification mark sheets fo 10th, 12th, Degree certificate,etc.
Course details - GMAT, SAT, CAT scores,Acceptance letter, Fee invoice and invoices for expenses.
Collateral documents (if needed)- Proof of ownership of the asset
General documents - Application form, etc
Collateral & Margin Money Requirement for Education Loan
The conditions for margin money and collateral for an education loan can vary between lenders.
Margin money is the portion of the cost that is to be brought in by the borrower. Currently you can avail an educational loan for up to Rs 4 lakh without the need for any margin money. For amounts over Rs 4 lakh, a margin money of 5% is required for courses in India and 15% for education abroad.
Collateral is security that is pledged to the lender till the loan is repaid satisfactorily. Collateral could be a third party guarantee or pledging of assets like real estate, Fixed Deposits, etc.
If your loan amount is within Rs 4 lakh there is no collateral requirement. For loan amounts between Rs 4 lakh- Rs 7.5lakh a collateral in form of a third party guarantee is required. For loans over Rs 7.5 lakh a collateral is required for loan approval.
For more information on getting collateral free education loans, you can check here.
However, these requirements could change based on the lender
Personal Loans for Higher Education
Undoubtedly, Education loans come at a lower rate of interest. But there may be instances when the amount approved isn’t sufficient or expenses come up in the future. For all such cases, you/ an earning member of your family can apply for an easy personal loan from Money View.
The eligibility criteria is relaxed and the disbursement is done within 24hrs in most cases.